KIFRS Adoption and Audit Risk

Abstract

After principles-based KIFRS (Korean International Financial Reporting standards) adoption, it is expected that managers will carry out arbitrary and opportunistic accounting, and that the extension of fair value evaluation model will increase the volatility in the reported values of assets and earnings as well. These factors will increase audit complexity and lead to an increase in audit risk. So in this paper, we examine whether the audit risk- inherent risk and control risk is increased after KIFRS mandatory adoption. Inherent risk is measured as the propensity of substantial doubt about going- concern and control risk is measured as the propensity of internal control deficiencies. The overall findings suggest that the probability of going-concern opinion and internal control deficiencies reporting is decreased after KIFRS mandatory adoption. The decrease of going concern opinion is appeared mainly by firm characteristic variation, auditor' perception of firm risk (inherent risk) is not changed after KIFRS mandatory adoption. And the decrease of internal control deficiencies reporting is appeared partly by firms' characteristic improvement, and auditors also have perceived firms' risk (control risk) decrease after KIFRS mandatory adoption.